In particularly hot markets or in the case of a specialty property, multiple buyers may be after one property. If you find yourself in one of these “bidding war” situations, finding a good real estate agent is your best offense and defense.
When inventories are low but buyer activity is high, the market typically preferences sellers. That means that while sellers are seeing multiple bids and appealing offers, buyers are working through tough competition and bidding wars.
Buyers looking for homes in these market environments need to have a good agent by their side to help them form a strategy to win the bidding war.
Good Agents Can Help You Win a Bidding War
It’s not all about the dollar amount.
There are other intricacies of an offer that can actually be more appealing to sellers than an over-asking price. Top agents will know how to make a strong offer that stands out immediately, which can boost your chances of being chosen by the seller.
Here are four ways that finding a good real estate agent can prepare you to successfully navigate your offer when making a bid on a home in a seller’s market.
#1. A Savvy Agent Helps You Set the Price
While a high dollar amount alone doesn’t necessarily create a strong offer, your agent will know how to help you set your offer’s price.
In particularly competitive markets, it’s often a good idea to go over asking.
However, you won’t want to set a price that’s too far out of the fair market value of the home if you’re funding your purchase with a mortgage. Lenders require appraisals to determine the home’s true value, and you’ll need to negotiate if your over-asking offer is too far above the appraised value.
Your agent will help you set a competitive price that stays within a reasonable range so you won’t have to worry about being overlooked by sellers or having to renegotiate your offer because of lending issues.
#2. Smart Agents Know to Include Earnest Money
Earnest money is funds put toward the purchase of a home to secure the buyer’s position.
Earnest money makes offers stronger since it shows the seller that you have full intention to close on the home. In other words, you’re not going to put an offer on another listing once you’re already negotiating with them. This helps sellers feel confident about accepting your offer.
Earnest money is typically a small percentage of the asking price. The money is included in the offer and is held by a seller in an escrow account until the deal closes.
If you don’t hold up your end of the contract, the seller gets to keep the earnest money. If the deal falls through because of reasons outside of your control — such as if the inspection finds a serious issue with the home — the earnest money is returned to you. If you successfully make it to closing, the earnest money is put toward your down payment.
Finding a good real estate agent means having someone to help you put down the correct amount of earnest money, as well as write contracts to protect your interests.
#3. Clever Agents Recommend Escalation Clauses
In many cases, sellers stall on accepting an offer because they’re waiting for potentially better or higher offers. An escalation clause can safeguard both buyers and sellers in these situations.
An escalation clause is a contingency that states that a buyer is willing to provide a counter offer up to a certain amount in the case that the seller receives a competing offer.
Sellers can confidently accept your offer without feeling like they’ll lose out on a better deal, and buyers can set a range for their offer without choosing the higher amount by default.
Your agent will remind you to include an escalation clause in your offer so you increase your chances of winning against other bids.
#4. Experienced Agents Know You Need Proof of Pre-Approval
If you’re going to be purchasing your home with a mortgage loan, sellers will want to know that you can actually afford the buy once it comes time to close.
Pre-approval letters are crucial for showing a seller that you’re financially backed for the offer amount. They’ll know that you’re working toward your loan and have taken steps to secure your financing. This puts you in a better position to move into escrow versus a buyer that cannot support their offer.
Finding a good real estate agent will also help you secure your financing further since pre-approval letters don’t guarantee to fund the amount named.
#5. Upgrade your offer to cash
Cash is king. Certainty to close and demonstrating your seriousness in purchasing a home are two of the biggest reasons why sellers like cash offers. While all-cash sales have risen to represent 25% of existing home sales according to the NAR, that means that 3 out 4 people are not able to submit all-cash offers. However, there are companies that will help you 'upgrade your offer to cash', for a fee. Companies such as Ribbon and Flyhomes will allow you to submit an all-cash purchase offer for a fee of approximately 1% of the home price. While this isn't cheap, having an all-cash offer versus not having one can be the difference between winning a house and losing one, especially in competitive markets.
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